Deck 1: Personal Financial Planning: An Introduction

Question 1

Which of the following goals would be the easiest to implement and measure its accomplishment?

A) "Reduce our debt payments."
B) "Save funds for an annual vacation."
C) "Save $100 a month to create a $4,000 emergency fund."
D) "Clear credit card debt
E) "Invest $2,000 a year for retirement."

Answer 1

"Save $100 a month to create a $4,000 emergency fund."

Question 2

The financial planning process concludes with efforts to:

A) develop financial goals.
B) create a financial plan of action.
C) analyze your current personal and financial situation.
D) implement the financial plan.
E) revaluate and revise your actions.

Answer 2

revaluate and revise your actions.

Question 3

Opportunity cost refers to:

A) money needed for major consumer purchases.
B) the trade-off of a decision.
C) the amount paid for taxes when a purchase is made.
D) current interest rates.
E) evaluating different alternatives for financial decisions.

Answer 3

the trade-off of a decision.

Question 4

Some savings and investment choices have the potential for higher earnings. However, these may also be difficult to convert to cash when you need the funds. This problem refers to:

A) Inflation risk
B) Interest rate risk
C) Income risk
D) Personal risk
E) Liquidity risk

Question 5

A risk premium associated with interest rates refers to:

A) higher earnings due to uncertainty.
B) lower consumer prices.
C) the opportunity cost of borrowing
D) a loan with a short maturity.
E) expected lower inflation.

Question 6

Higher interest rates can be caused by:

A) a lower money supply.
B) an increase in the money supply.
C) a decrease in consumer borrowing.
D) lower government spending.
E) increased saving and investing by consumers.

Question 7

Changes in income, values, and family situation make it necessary to:

A) develop financial goals
B) implement the financial plan.
C) evaluate and revise your actions.
D) analyze your current personal and financial situation.
E) create a financial plan of action.

Question 8

Higher consumer prices are likely to be accompanied by:

A) lower union wages.
B) lower interest rates.
C) lower production costs.
D) higher interest rates.
E) higher exports.

Question 9

Higher prices are likely to result from:

A) increased spending by consumers.
B) increased production by business.
C) lower interest rates.
D) lower demand by consumers
E) an increase in the supply of a product.

Question 10

Personal financial planning has the main goal of:

A) Savings and investing for future needs.
B) Reducing a person's tax liability.
C) Managing money to achieve personal economic satisfaction.
D) Spending to achieve financial objectives.
E) Savings, spending, and borrowing based on current needs.

Question 11

As Jeanne Taillefer plans to set aside funds for her young children's college education, she is setting a(n) ____________ goal.

A) intermediate
B) short term
C) long-term
D) intangible
E) durable

Question 12

Increased consumer spending will usually cause:

A) lower consumer prices.
B) reduced employment levels.
C) lower tax revenues.
D) higher employment levels.
E) lower interest rates.

Question 13

The first step of the financial planning process is to

A) develop financial goals.
B) implement the financial plan.
C) determine your current personal and financial situation.
D) evaluate and revise your actions.
E) create a financial plan of action.

Question 14

Increased consumer spending will usually cause:

A) lower consumer prices.
B) reduced employment levels.
C) lower tax revenues.
D) lower interest rates.
E) higher employment levels.

Question 15

The present value of a future amount will decrease if _________________.
I. the discount rate increases
II. the amount occurs closer in time
III. the compounding frequency increases
IV. inflation increases

A) I and II only
B) I and III only
C) II and III only
D) III and IV only
E) I, III and IV only

Question 16

____________ goals relate to personal relationships, health, and education.

A) Short-term
B) Intangible-purchase
C) Consumable-product
D) Durable-product
E) Intermediate

Question 17

Brad Opper has a goal of "saving $50 a month for vacation." Brad's goal lacks

A) measurable terms.
B) a realistic perspective.
C) specific actions.
D) a tangible end.
E) a time frame.

Question 18

The changing cost of money is referred to as ____________ risk.

A) interest-rate
B) inflation
C) economic
D) trade-off
E) personal

Question 19

Who is most likely to benefit by inflation?

A) retired people
B) lenders
C) borrowers
D) low-income consumers
E) government

Question 20

The uncertainty associated with decision making is referred to as:

A) opportunity cost.
B) selection of alternatives.
C) financial goals.
D) personal values.
E) risk.

Question 21

An example of a personal opportunity cost would be:

A) lost wages due to continuing as a full time student
B) higher earnings on savings that must be kept on deposit a minimum of six months.
C) time comparing several brands of personal computers
D) Interest lost by using savings to make a purchase
E) having to pay a tax penalty due to not having enough withheld from your monthly salary.

Question 22

The stages that an individual goes through based on age, financial needs, and family situation is called the:

A) adult life cycle.
B) budgeting procedure.
C) personal economic cycle.
D) financial planning process
E) tax planning process.

Question 23

If you put $1,000 in a saving account and make no further deposits, what type of calculation would provide you with the value of the account in 20 years?

A) future value of a single amount
B) simple interest
C) present value of a single amount
D) present value of a series of deposits
E) future value of a series of deposits

Question 24

Which of the following would cause prices to drop?

A) a demand for higher wages
B) increased production by business
C) increased taxes on business
D) a reduction in the money supply
E) high levels of demand by customers

Question 25

The amount of simple interest is determined by multiplying the amount in savings by the:

A) annual interest rate.
B) time period.
C) number of months in a year.
D) time period and number of months.
E) annual interest rate and the time period.

Question 26

Reduced funds available for investment in our economy could result from

A) expanded savings by consumers.
B) higher imports than exports.
C) reduced spending for consumer goods.
D) higher exports than imports.
E) higher opportunity costs.

Question 27

The problem of bankruptcy is associated with poor decisions in the ______________ component of financial planning.

A) financial goals
B) saving
C) planning
D) restructuring debt
E) liquidity

Question 28

Future value calculations consider:

A) compounding.
B) add-on interest.
C) discounting
D) simple interest.
E) an annuity.

Question 29

An individual invests $10,000 at a rate of 5% per annum. What will be its value in 10 years' time?

A) $15,000
B) $15,853
C) $16,289
D) $18,000
E) $19,000

Question 30

Assume the following future values will be received at the end of each year. What is the interest rate if the future value of these amounts at the end of year 3 is equal to $2,393? Yr. 1 = $500; Yr. 2 = $750; Yr. 3 = $1,000

A) 6.5%
B) 6.8%
C) 7.0%
D) 8.0%
E) 8.9%

Question 31

A question associated with the saving component of financial planning is:

A) Is your will current?
B) Do you have an adequate emergency fund?
C) Is your investment program appropriate to your income and tax situation?
D) Do you have a realistic budget for your current financial situation?
E) Are your transportation expenses minimized through careful planning?

Question 32

What is the future value of $20,000 received in 10 years if it is invested at 6% compounded annually for the next six years and 5%, compounded semi-annually for the remaining four years?

A) $25,000
B) $31,000
C) $32,772
D) $34,567
E) $38,817

Question 33

If a person deposited $100 a month for 5 years earning 9 percent, this would involve what type of computation?

A) simple interest
B) future value of a single amount
C) future value of a series of deposits
D) present value of a single amount
E) present value of a series of deposits

Question 34

Liquidity refers to

A) the earnings on savings.
B) the risk of an investment.
C) the ease of converting a financial resource into cash.
D) the amount of insurance coverage a person has.
E) a person's inability to pay his or her debts.

Question 35

The main economic influence that determines prices is:

A) the stock market.
B) supply and demand.
C) employment.
D) government spending.
E) interest rates

Question 36

Assume your uncle will pay you $100 for each of the next two years and $200 in years 3 and these amounts will be paid at year end. Assume the interest rate is 10% for the first two years and 12% for the next two (years 3 and 4). What is your uncle's promise worth in today's dollars? (Round your answer)

A) $317
B) $342
C) $453
D) $512
E) $600

Question 37

Which type of computation would a person use to determine current value of a desired amount for the future?

A) simple interest
B) future value of a single amount
C) future value of a series of deposits
D) present value of a single amount
E) present value of a series of deposits

Question 38

The time value of money refers to:

A) personal opportunity costs such as time lost on an activity.
B) financial decisions that require borrowing funds from a financial institution.
C) changes in interest rates due to changes in the supply and demand for money in our economy.
D) increases in an amount of money as a result of interest.
E) changing demographic trends in our society.

Question 39

A major activity in the planning component of financial planning is

A) selecting insurance coverage.
B) evaluating investment alternatives.
C) gaining occupational training and experience.
D) allocating current resources for spending.
E) establishing a line of credit.

Question 40

When an individual makes a purchase without considering the financial consequences of that purchase, they are ignoring the ________________ aspect of financial planning.

A) Borrowing
B) Risk Management
C) Spending
D) Retirement and Estate Planning
E) Obtaining

Question 41

Your goal is to pay down your student loan in 3 years. The balance today is $9,434. If you are charged a rate of 4%, compounded monthly, what will be your monthly, end-of-period payment?

A) $262
B) $406
C) $279
D) $377
E) $300

Question 42

Developing financial goals is the first step in the financial planning process.

Question 43

An individual invests $5,000 at a rate of 5% per annum. What will be its value in 10 years' time?

A) $7,500
B) $7,927
C) $8,144
D) $9,000
E) $9,542

Question 44

Your goal is to accumulate in 4 years $5,000. If you can earn a rate of 4%, compounded monthly, what will be your end of month monthly payment need to be to reach this goal?

A) $96
B) $104
C) $124
D) $262
E) $300

Question 45

The major function of a financial plan is to:

A) reduce taxes.
B) increase savings.
C) achieve financial goals.
D) improve your credit rating.
E) obtain adequate insurance protection.

Question 46

Which of the following is usually considered a long-term financial strategy?

A) creating a budget
B) using savings to pay off a loan early
C) renting an apartment to save for the purchase of a home
D) investing in a growth mutual fund to accumulate retirement funds
E) purchasing life insurance to cover current needs of dependents

Question 47

The second step of the financial planning process is to

A) develop financial goals.
B) implement the financial plan.
C) determine your current personal and financial situation.
D) evaluate and revise your actions.
E) create a financial plan of action.

Question 48

Assume the following future values will be received at the end of each year. What is the interest rate if the future value of these amounts at the end of year 3 is equal to $2,006? Yr. 1 = $400; Yr. 2 = $500; Yr. 3 = $1,000

A) 6.5%
B) 6.8%
C) 7.0%
D) 8.0%
E) 8.9%

Question 49

Anne has a goal of "saving some money month for vacation next summer." Anne's goal lacks

A) measurable terms.
B) a realistic perspective.
C) specific actions.
D) a tangible end.
E) a time frame.

Question 50

Time value of money calculations consider:

A) present value.
B) interest rate.
C) payment
D) time period.
E) all of the above.

Question 51

You wish to accumulate $15,000 within five years. How much would you have to save each year for five years to attain your goal? Assume an annual interest rate of 4%. Savings occur at the end of each year.

A) $2,662
B) $2,769
C) $2,905
D) $3,000
E) $3,500

Question 52

Intermediate goals are usually achieved within the next year or so.

Question 53

The financial planning process is complete once you implement your financial plan.

Question 54

Dani Roy wants to travel after she retires as well as pay off the balance of the loan she has on the home that she owns. Which step in the financial planning process does this situation demonstrate?

A) Determining her current financial situation
B) Developing her financial goals
C) Identifying alternative courses of action
D) Evaluating her alternatives
E) Implementing her financial plan

Question 55

Financial planning does not have specific techniques that will be effective for every individual and household.

Question 56

Analyzing your current financial position is a part of the first stage of the financial planning process.

Question 57

Assume your friend will pay you $200 for each of the next two years and $400 in years 3 and these amounts will be paid at year end. Assume the interest rate is 10% for the first two years and 12% for the next two (years 3 and 4). What is your friend's promise worth in today's dollars? (Round your answer)

A) $1,000
B) $951
C) $906
D) $831
E) $600

Question 58

Your goal is to pay down your student loan in 3 years. The balance today is $9,434. If you are charged a rate of 9%, compounded monthly, what will be your monthly, end-of-period payment?

A) $527
B) $406
C) $300
D) $262
E) $193

Question 59

Risks associated with most financial decisions are fairly easy to measure.

Question 60

Decreased consumer spending will usually cause:

A) lower consumer prices.
B) reduced employment levels.
C) lower tax revenues.
D) lower interest rates.
E) higher employment levels.

Question 61

Planning to buy a house is an example of a durable product goal.

Question 62

Changes in interest rates don't affect your financial planning.

Question 63

Risks associated with most financial decisions are difficult to measure.

Question 64

Simple interest is the interest computed based on the principle, excluding previously earned interest.

Question 65

Increased demand for a product or service will usually result in lower prices for the item.

Question 66

Time value of money refers to changes in consumer spending when inflation occurs.

Question 67

Present value is the current value of an amount of money desired in the future based on an interest rate and a certain time period.

Question 68

Gross domestic product (GDP) can be described as the difference between a country's exports and its imports.

Question 69

A higher opportunity cost implies a lower current value.

Question 70

A decrease in the demand for a product or service may result in a decrease in wages for people producing that item.

Question 71

When prices are increasing at a rate of 6 percent, the cost of products would double in about 12 years.

Question 72

Present value computations is also called discounting.

Question 73

Opportunity costs refer to time, money, and other resources that are given up when a decision is made.

Question 74

A financial plan is also known and referred to as a budget.

Question 75

Household size is a major influence on personal financial planning decisions.

Question 76

Inflation reduces the buying power of money.

Question 77

Lenders benefit less than borrowers in times of high inflation.

Question 78

Liquidity is the ability to convert financial resources into usable cash with ease.

Question 79

Present value is also referred to as compounding.

Question 80

Higher inflation usually results in lower interest rates.